I purchased a very few stocks/etf's early this year (among them, BOND from Pimco). Found out later that Scottrade does NOT auto reinvest dividends on any etf's/stocks, but puts proceeds into cash balance - making manual reinvestment not practical due to costs.
I've been tracking the date the dividends were declared vs. the date Scottrade actually puts the proceeds into cash balance. In two of my investments, the delay is over 2 weeks, and the minimum seems to be 10 days.
Do most brokerages have the same "no auto reinvest" policy for stocks/etf's? If so, are that long of delays normal?
Comments
For S'trade, do you have to go in somewhere and select DRIP, or contact them? (Ameritrade you have to contact them manually for stocks/etfs or if you want to change a fund reinvestment.) I'd be really surprised if Scottrade offers no auto reinvestment at all - if so, that's a real bummer.
Divs appearing in the cash account should take only a couple of days after pay date, surely no more than the # days that trade settlements take. But it sounds like you may be keying off the declaration date, rather than the pay date?
As for the delay in posting the dividend to your account I have also noticed that Fidelity posts it on the day of and Scottrade is usually a day or two behind. Do check though as fundalarm mentioned the 'declared' date vs. the posting or 'pay' date. There can be quite a difference.
My experience with Scottrade Customer Service has been dismal. 9 out of 10 times I either receive the wrong answer, a misleading answer, or no answer at all. In some cases it has cost me money... in others, just extreme annoyance. This has been true equally of their online "contact me" customer service (who just deletes my history if they decide not to answer), and my local Scottrade office (who has given me the wrong information several times).
I am more frequently thinking of changing brokerages now. However, it took so much time and trouble just to get my cost basis/history transferred when Scottrade forced us to apply for a brand new account when all we did was change the name of the account to a Trust (which had the same EIN#/tax# as the original one).
I'm just reading your response to Scott re Fidelity. They DO have auto-reinvesting for stocks/etf's without any fees?
Ameritrade offers better customer service, but 180 day holding period for NTF funds. E-trade's customer service can be a little so-so at times (uneven), but you can trade on foreign exchanges, there's a good list of no commission fee ETFs (better than Ameritrade's) and I think Etrade's interface is good in terms of finding market information - what companies are reporting today, etc. Etrade's TF funds are $19.99 as well, vs $49.99 for A'trade.
I know people that like Fidelity as well.
Funds should have listed a "record date" (holders as of this date get the dividend), an "ex-dividend" date (the date the dividend is removed from the price) and pay date
Second, when reinvesting you dividends in additional shares you don't necessarily get the ex-dividend price. For example, if you own a $2 stock and they pay a $1 dividend you may not be buying more shares at a $1. Also, not all equities technically allow reinvestment of dividends in more shares. What Fidelity does is collect (buy) enough shares ahead of the ex-dividend date to parcel out to those shareholders who want additional shares. Whatever those shares cost will be your reinvestment price which may be higher or lower than you expect. Other equities such as certain MLP's and CEF's provide a discount to current shareholders when dividend proceeds are reinvested in additional shares. Bottom line it's like opening up a box of chocolates - you never know what you're going to get ahead of time down to the last $0.001 penny.
You could google the definition of the dividend related dates to get a better understanding.
"We do not currently offer dividend reinvestment for stocks or Exchange-Traded Funds (ETFs). Cash dividends paid to your account are added to your available money balance. The current credit interest rates paid on cash balances is available on our Credit Interest Rates page.
Currently, automatic dividend and capital gain reinvestment is only available for mutual fund positions.
We offer the option to have cash dividends mailed from accounts automatically. Accrued dividend balances are mailed twice monthly, on the second and last Wednesday. In order to request this automatic payment option, please call your local Scottrade team.
If you wish to participate in a dividend reinvestment program (DRIP), you will need to sign up directly through the transfer agent of the company in which you own stock.
If the security in question is eligible for transfer through the Direct Registration System (DRS), you can have your shares transferred to an account with the company's transfer agent at no cost. You will need to complete a Direct Registration System Request - Outgoing form and submit it to your local Scottrade team for processing. This form is available online through our Forms Center."
Re other brokerages... I guess they all have some negatives, so it's just a matter of choosing the one where the negatives are least important to you.
As far as you know, do ANY of these brokerages automatically transfer the history and cost basis of all investments if you transfer investment accounts/portfolios?
Re "Record", "Pay Date", etc. I have only been checking these through M*, so another novice question, if that's ok. How do I access current "record dates", "Pay Dates", etc.? Do I need to try and find the web site for each etf/stock to see if I can locate these there, or do you know of one site that may have these information for most etf/stocks?
P.S. I didn't know what "Bloomberg Terminal" was, but found nice answer in Wikipedia. Am I correct in reading that you need a subscription, which Wiki says is almost $2000/month?
FWIW - Fidelity's TF for non NTF funds is $75. I believe Schwab is the firm that charges $49. That aside, if I want a position in a fund that Fidelity has, but charges me to buy, I will sometimes make the buy at Scottrade (assuming it's also available there) and then have the fund transferred to Fidelity if that's where I want to hold it. Fidelity does NOT charge to sell the fund. Granted it's Mickey Mouse but oh well. You always have to check to make sure that the two firms both carry the fund of interest first though. Sometimes they may each carry the same fund but not the same share class (i.e. a,b,c,x,y,z)
Your transfer technique which saves the $75 non-ntf buy fee is a great idea.
Mark gives a good description of how dividend reinvestments are handled for securities that are exchange traded (stocks, ETFs, etc.). These days, most brokers will perform their bookkeeping magic to reinvest dividends on at least all the popular securities. Scottrade's the rare bird here.
[BOND may be a pseudo-clone of Pimco Total Return (but with a somewhat different strategy that doesn't use derivatives), but it is still a different investment. Common sense suggests that brokers should start supporting dividend reinvestments for a security once it becomes popular, as BOND has, not once it reaches a certain age. But when has common sense guided this business?]
Schwab now charges $76 to buy a TF fund, zero to sell. (Reestablishing the standard $1 difference between Fidelity and Schwab on various commissions.) The "transfer shares" technique of circumventing Fidelity's $75 fee has its limitations. If you're transferring from a brokerage, that brokerage may charge an ACAT (transfer) fee; Fidelity will often reimburse you for a taxable account transfer fee, but that reimbursement is shown as income (you owe taxes). They've told me that they won't reimburse the ACAT fee for an IRA transfer.
Finally, regarding transfer of history and cost basis: Pre-2012 (funds), pre-2011 (stocks), brokers had no obligation to keep track of costs. That they did so was a courtesy, and you had no right to rely on any information they provided to help you with your taxes (outside of the "official" 1099s and such). I doubt whether any brokers transfer that information. Post 2011 (post 2010 for stocks), brokers are obligated to transfer history and cost info. But your rights to rely on that information are still limited. I think a case could be made for relying on the history aspect (when you bought and sold, how many shares and at what price), but you're still on your own with the cost basis. The brokers have to report it, but they're not required to get it right (in fact, the IRS has rules that requires them to get it wrong in some situations). You have the obligation to use the history information to get the cost basis right.